Tips for Smart Investing

Shares of Netflix (NFLX – Free Report) jumped nearly 5% Friday early afternoon thanks to two analysts upgrades. The surge in positivity comes about a week before the streaming compression TV engine reports its fourth quarter financial results. Despite the continued rise of NFLX after Christmas Eve, Netflix shares are about 20% below their highs, which means it may be time to buy NFLX down before returning. possible in 2019.

Upgrades

Raymond James analyst Justin Patterson shifted the Netflix stock from "outperforming" to "strong," citing the company's impending inflection, solid content, and more. Patterson also received a new price of $ 450 per share on NFLX, which implies a 38% increase over the closing price of $ 324.66 per share on Thursday.

UBS also voiced optimism for NFLX shares on Thursday after analyst Eric Sheridan raised his rating from "neutral" to "buy" and raised his price target to $ 410 per share. action. "With the content now being spent at a scale of major media companies and titles continuing to show tremendous market success, we are finding that the gap around NFLX's global positioning is widening and that its status as a secular winner long term remains intact, "wrote Sheridan.

Investors should also note that Goldman Sachs analyst (GS – Free Report), Terry Heath, reiterated his purchase price and his $ 400 share price target for Netflix shares last week. All this positivity of analysts has contributed to the 45% increase in Netflix since Christmas Eve.

In fact, NFLX has destroyed its partners FAANG, Facebook (FB – Free Report), Apple (AAPL – Free Report), Amazon AZMN and Google (GOOGL – Free Report), from 2019. Investors nevertheless have a chance to pick up NFLX shares have been on the decline since its stock price hovered around $ 340 in the early afternoon on Friday, down about 20% from its 423-week high, with $ 423.21.

Netflix Overview

Netflix won more Golden Globes last Sunday, five minutes, than any other network or streaming service. The company also ended the 17-year HBO race, which climbed to the top of the Emmy Awards last year. The statistics of these rewards are critical to the long-term success of Netflix because, in the end, the only thing that will matter in an increasingly congested streaming space is the company's ability to produce series and movies successful and critically acclaimed.

Still, many investors have become nervous about Netflix's initial content spending, which is expected to reach $ 13 billion in 2018. But its CEO, Reed Hastings, knows his company needs to offer quality and quantity to stand out and attract customers. compared to his rival Amazon Prime and quickly. Disney (DIS – Free Report), Apple and AT & T (T – Free Report). That said, Netflix's new chief financial officer, Spencer Neumann, must try to balance spending with shareholder profitability.

Netflix expects to generate negative free cash flow of $ 3 billion in 2018 and 2019. The company has also recently contracted more long-term debt. Yet, the company clearly believes that these measures are necessary to develop its subscriber base. "We recognize that we are investing heavily in content, and we want to assure our investors that we have the same high confidence in the underlying economic situation as our cash investments in the past," writes the company in its third letter. quarter to shareholders.

Netflix is ​​currently the largest streaming company, with more users than Prime's "over 100 million" and about 25 million total Hulu subscribers, which have climbed 48% this year. In addition, the company expects to add 9.4 million subscribers in the fourth quarter to bring its revenue to 146.5 million worldwide, or 8.3 million users over the same period. previous year. And despite the growth of its revenues, subscriber growth remains perhaps the most watched metric.

Outlook T4

According to our estimate of the current Zacks consensus, Netflix's revenue for the fourth quarter is expected to jump by 28% to $ 4.21 billion. For reference, NFLX's revenues increased 34% in the third quarter and 40% in the first and second quarters. In total, NFLX's revenue for the full year is expected to increase by 35%, from $ 11.69 billion in 2017 to $ 15.81 billion in 2018.

At the same time, the company's adjusted fourth quarter earnings are expected to fall 39% from the same period last year to $ 0.25 per share. Despite NFLX's expected fourth-quarter earnings decline, the company's earnings for the year 2018 are expected to soar by 110.4% to $ 2.63 per share. In addition, in anticipation of fiscal 2019, Netflix's earnings for the full year are expected to be 55% higher than our estimate for 2018.

Bottom line

Netflix has had an incredible journey over the past five years, from content aggregator to television and original movies. Today, the company is a legitimate Hollywood studio that has attracted some of the biggest movie stars on the planet. In addition, the continuous television market is expected to grow only globally as linear TV fades. Just look at some of Roku's 4th quarter results (ROKU – Free Report) (also read: Buy Roku stock after the 4th hour of streaming?)).

Finally, investors should ask themselves if they think that the Netflix stock will not return to at least its 2018 high because it still has a 20% margin for growth before reaching this bar.

It is currently expected that Netflix will release its fourth quarter financial results on January 17th.

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